The German and euro-zone economies slowed to a snail's pace in the second quarter, raising the risk of a period of stagnation or possibly even recession, just when Europe badly needs growth to help it escape the debt crisis on its periphery.

The lower-than-expected growth last quarter, combined with weak business surveys for the current quarter, shows that even Europe's strongest economies are now suffering from the global soft patch that hit other major economies early this year.

The weakness stretched from Germany, Europe's industrial powerhouse, which slipped to near-stagnation from boom-like expansion in previous quarters, to fragile and debt-ridden countries like Portugal.

With risks of stagnation on the rise, the European Central Bank will likely pause its rate-increase campaign for many months, analysts say, or risk exacerbating Europe's economic troubles.

Euro-zone gross domestic product rose 0.7% at an annualized rate in the second quarter, according to data from the European Union's statistics agency Eurostat, half the rate economists expected. On a quarterly basis, GDP grew 0.2%. European stocks slid on signs of economic weakness, and the euro fell slightly versus the U.S. dollar.

Unlike previous quarters, when strength in the euro zone's prosperous "core" of Germany, France and the Netherlands more than offset stagnation and contraction in Southern Europe and Ireland, weakness was widespread in the second quarter.

Germany's economy advanced just 0.5% at an annualized rate. Though a downshift from the first quarter's sizzling 5.5% pace had been expected, the extent of the weakening caught forecasters by surprise. France was flat, while Spain grew less than 1%. Italy's 1% growth rate made it the best performer among large euro members. Portugal posted no growth in the second quarter from the first.

Greece and Ireland didn't report comparable quarterly figures, although last week Greece said its economy plunged 6.9% from the year-earlier period.

"There's a real underlying slowdown going on that is spreading to the core," said Jennifer McKeown, an economist at consultancy Capital Economics, calling the German and French figures "particularly shocking."

Michael Rentschler, vice president at ERNI Electronics, said, "We were growing very strong until May, and then in June and July it dropped."

The company, based near Stuttgart, Germany, makes connectors and electrical-transmission equipment for the telecommunications, medical and transportation industries. "I think we have to look for a much weaker second half of the year," Mr. Rentschler said.

The biggest swing, he said, has been from Asia, where orders have shrunk from year-ago levels after being a reliable source of growth. Mr. Rentschler said it wasn't clear whether business was in a temporary lull or a more pronounced slowdown. He expects to get a better reading after Europe's summer holidays. Until then, his company is reducing overtime and other expenses and drawing down inventories.

Just as Germany's first-quarter surge likely overstated its strength, things aren't as dire as last quarter's steep slowdown suggests, economists said. "The truth lies in between," said Andreas Rees, Munich-based economist at lender UniCredit, who expected Germany to grow in the 2% range in coming months, in line with its long-term average. Despite last quarter's near-stall, German growth will likely reach 3% in 2011 for a second-straight year.

"For us and for many other companies, we don't see that the economy is weakening," said Dagmar Bollin-Flade, chief executive at Christian Bollin Armaturenfabrik GmbH, one of Frankfurt's oldest businesses, which produces specialty valves for the petrochemical industry and power plants. Christian Bollin, which employs about 30 people, relies on exports for about half its revenues. Ms. Bollin-Flade still sees strong demand from power plants in Asia and other parts of Europe, and expects 5% to 10% order growth for 2011.

But some of Germany's global brand-name companies are warning of slower growth ahead. Industrial conglomerate Siemens AG said last month that global economic risks were on the rise. Chemicals company BASF SE warned that debt problems in Europe and the U.S. could hurt economic growth.

With major, industrialized countries such as the U.S. and Japan recovering weakly, if at all, German industry has relied on demand from fast-growing emerging markets including Brazil, Russia, India and China—collectively known as BRICs— to power demand for its luxury cars and specialty machine tools.

Many of those countries are taking steps to cool signs of overheating by raising interest rates and slowing the growth of credit. How successful they are in achieving "soft landings" of strong growth and low inflation may be an even bigger issue for Germany's economy than the debt crisis along Europe's southern fringe and Ireland, some analysts say. "This is not a debt story, this is a China and emerging markets story," said UniCredit's Mr. Rees.

And what happens in Germany has ripple effects in Europe. Greece and Portugal export only a small amount to Germany, so even 3%-plus growth was unlikely to generate much business for those countries. But Spain shipped more than €22 billion ($32 billion) in goods to Germany last year and Italy twice that, providing a critical offset to those countries' weak domestic demand.

Europe's growth outlook has taken on new urgency amid concerns about Spain and Italy's ability to refinance large piles of government debt at higher market rates.

Fiscal austerity does little to change a country's debt dynamics unless it is accompanied by economic growth, which generates new tax revenue and eases pressure on social spending.

"If growth is coming in weaker than expected, it deteriorates the fiscal position so governments would have to do more tightening," said Greg Fuzesi, economist at JPMorgan Chase in London.

A weaker euro bloc may put more pressure on the ECB to limit the effects of the debt crisis through expansionary interest-rate policies or purchases of government bonds. The central bank bought large amounts of Spanish and Italian bonds last week to support bond prices. Many economists expect the ECB to delay its next interest-rate rise until next year amid the latest signs of cooling in the euro bloc.

But a key question remains: With emerging markets scrambling to keep inflation in check, the U.S. still struggling with the aftereffects of the debt crisis and major economies around the world on austerity drives to reduce public and private debt, who will buy the goods and services produced in Europe and elsewhere?

"How do we recover if all countries have to save money and don't have spending power?" asked Mr. Rentschler of ERNI Electronics. "Cutting debt is not without pain."
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